SYDNEY--A sharp rebound in Australian business confidence last month may prove no more than a blip as economic conditions simultaneously weakened in July and companies in the mining industry--the backbone of the economy--warned of a darkening outlook.

National Australia Bank's business confidence index rose to +4 points in July from minus 3 points in June, buoyed by interest-rate cuts over the preceding two months and generous one-off government handouts to help insulate families from the impact of a new carbon tax.

The result was overshadowed by a gauge, also in Tuesday's NAB survey, tracking business conditions that fell to minus 3 points from minus 1 point in June, reflecting the grim global backdrop and the pain felt by manufacturers and other sectors of the economy due to a soaring Australian dollar.

"You could argue confidence should have been far higher if it was a real turnaround given the rate cuts, government handouts, the tax cuts," said Commonwealth Securities analyst Savanth Sebastian, adding that markets shouldn't read too much into it. "Looking at that confidence reading, you'd say it is very early days."

Mining companies, including Rio Tinto PLC (RIO), have announced job cuts alongside earnings results this month to cope with dwindling profit--leading some economists to begin calling the end of the country's mining boom that has insulated Australia from much of the global downturn in recent years.

Manufacturers and others have said a string of interest-rate cuts since November need to be extended to ease pressure on those parts of the economy not sharing the benefits of a surge in mining investment fueled by Asia's demand for raw materials.

The Australian dollar has risen by more than 10% since the start of June, defying falling prices for iron ore and coal, Australia's biggest exports.

The strength of the Aussie dollar, due in large part to increased demand for the country's AAA-rate bonds by as many as 60 of the world's central banks, has triggered calls for central-bank intervention in currency market to force it lower.

The Reserve Bank of Australia singled out the currency twice last week in separate statements, saying Friday there was a risk it could have more of a "contractionary" impact on the economy than in the past.

At 0320 GMT, the Australian dollar was trading at US$1.0520, not far from its 30-year high of US$1.1080 reached in 2011.

In its survey, NAB said weaknesses in large pockets of the economy were now spreading into the mining sector, which is scrambling to deal with two-year lows in key commodity prices.

"Weaker prices for bulk commodities seem to be contributing to softer conditions in mining, where there are increasing reports of project deferrals," it said.

A nervous watch is being kept on key miners in the second half of the year, with some huge investment projects expected to be either delayed or scrapped altogether.

But the struggle in parts of the economy is more widespread, with building construction in an extended slump, while many manufacturers are either planning to relocate elsewhere in Asia or close down operations entirely.

"Disturbingly soft in construction, manufacturing continues to shed jobs and the nascent recovery in retailing appeared to take a backward step in July," NAB said.

"Property markets are still drifting and inbound tourism continues to wilt under the relentless strength of the Australian dollar," it added.

Still, mining remains strong overall, dressing up economic growth data. Economists say the pulse of the economy might still be robust enough to allow the RBA to keep interest rates steady over the next year.

NAB now expects the next move in interest rates to be up, but not until 2013, adding that this is a "line-ball" call.

A survey by Dow Jones Newswires of 10 economists published Tuesday showed their preliminary forecasts for economic growth in the second quarter remained robust overall.

It pointed to a 0.8% rise in gross domestic product in the quarter, compared with the preceding one, and a 3.7% rise annually. Official second-quarter economic growth data is due for release on Sept. 5.

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